…requires more than just good programming.

Monetization: Ads vs Toolbars vs Charging

I believe that the best way for most small software vendors to make money off their software is to charge for it. So I was interested to spot a post on BOS by someone who had tried ads, toolbars and charging to monetize the same piece of software. He kindly agreed to share his experience anonymously. Obviously it is only one data point, but the results are pretty unequivocal.

I developed a freeware program six or seven years ago. A piece of utility software, for either home or business use, in an extremely crowded and competitive niche. The downloads grew organically and settled into what they are now, around 30,000-40,000 per month. I’ve never used any paid advertising, but have always had a forum and been responsive to user queries. That, coupled with regular updates, built the software a fairly loyal user base.

My original idea was to make money by attracting visitors to the website and using Google Ads. This isn’t generally done on software sites, but it kind of worked for me (I still had a day job though). Eventually it was making one or two thousand dollars per month. I experimented with toolbar installer offers – Bing for the US and UK, Ask for the rest of the world. The revenue wasn’t too bad, but the ads made more.

Eventually I decided to try selling a ‘Pro’ version of the software, with even more features. I planned to keep the free version as a ‘gateway’. Note the free version still has more features than non-free competitors. It took about 6 months to write (evenings and weekends), and was finally released (with no marketing, apart from the website) in Jan 2012.

As you can see, from the first full month the sales revenue brought in ten times what the toolbar did. I wound down the site ads, and eventually removed the toolbar (you can see the revenue tail off in the chart).

He does say that the amount of downloads stayed fairly constant, which means the amount of money per download (which seems a pretty good metric here) went up by an order of magnitude after he released the Pro version. It isn’t a perfect experiment though, e.g. he didn’t try making money by ads or toolbars off the Pro version, which would have given better grounds for comparison.

Another good article, thanks Andy! Statistics like those are inspiring to me. I have been a long time reader of your blog and I hope you will permit me to ask an “off the wall” question to you. I know you live in the UK and I need to ask a simple question regarding the postal service in the UK. I live in the US and I am in the process of building a saas product. In the US we have a type of parcel postage called a “priority flat rate boxes”, which means that you can ship anything anywhere in the US for a flat rate. Boxes come in about 4-5 different sizes. Do you have something similar in the UK? You might be wondering why I’m asking you. I am thinking ahead to the day when I might expand my online business to the UK (provided the first phase is successful of course).

I’ve said it before, and I’ll say it again: Don’t write off bundling before you have tested it yourself. You’ll find many like the person above where the income is insignificant. With the right users though, that changes. I’m personally making $150,000+ a month using bundling, but it has to be done right, in the right products, for the right audience. In a technical app it will never work as well as in products for “casual” PC users.

All good points, thanks, but despite your objections the strategy clearly worked here. You might hypothesize it would have worked better if he charged from day one, but how can we know for sure?

* So how was it possible for this person to be successful without “bags of VC cash”?

Because he never needed it. Software construction costs were probably modest and an effective long-tail SEO (and Adwords) strategy wouldn’t have to break the bank. And those marketing costs would go down once he got his customers organically interacting and boosting the software’s relevance on key terms.

* How did he remain responsive without an income?

Perhaps he has a stable day job, extra time and lots of passion to work on his project. But note that his income was not 0 — he received a nice, passive stream from the ads. More than enough to keep him motivated.

* And how did he create worth from a free product?

It sounds like he kept his eyes open and used what he learned from his customers to add that value over time. Yes, his existing users might be “anchored” to free and it may be a challenge to get them to pay, but what about the *new* customers who don’t have that bias? They see a *trusted* product that solves their problem at a modest cost — it’s got a shot!

Now don’t get me wrong — I am not saying that he did the best thing. Perhaps charging from day one would have been better, but apparently there are several paths to “success”. And perhaps there is something to be learned from each one :)

Interesting article…. I was just wondering about
“A piece of utility software, for either home or business use, in an *extremely crowded and competitive niche*. the downloads grew organically and settled into what they are now, around 30,000-40,000 per month.”
and
“I’m personally making $150,000+ a month using bundling” (I found a reference on the web for a 2$ for each google software installed that means 75000+ monthly downloads…)
phrases….